On April 16, the Securities and Exchange Commission (SEC) filed charges against Spot Tech House Ltd., formerly known as Spot Option Ltd., and two of its former top executives for reaping more than $100 million in profits from U.S. and foreign investors whom they allegedly deceived through fraudulent and unregistered online sales of high-risk securities. According to the District of Nevada complaint, the SEC claimed that the defendants violated the anti-fraud and registration provisions of federal securities laws.
The SEC’s accompanying press release stated that Spot Option and its CEO and founder, Malhaz Pinhas Patarkazishvili, and its president, Ran Amiran, defrauded retail investors worldwide through a scheme involving the sale of online binary options. Binary options, the SEC explained, are “securities whose payouts are contingent on the outcome of a yes/no proposition, typically whether an underlying asset will be above or below a specified price at the time the option expires.”
Reportedly, the defendants used “white label partners” to directly market the options and were instructed to do so aggressively. What the defendants allegedly did not tell investors is that the white label partners were the counterparties on all investor trades and therefore profited when the investors lost money.
In furtherance of their illicit scheme, Spot Option and the individual defendants also purportedly “instructed its partners to permit investors to withdraw only a portion of the monies the investors deposited, devised a manipulative payout structure for binary options trades, and designed its trading platform to increase the probability that investors’ trades would expire worthless,” among other strategies.
The complaint alleged that U.S. and international investors lost millions of dollars as a result of these deceptive business practices while the defendants made massive gains. The SEC seeks disgorgement of the ill-gotten gains, pre-judgment interest, financial penalties, and permanent injunctions against all three defendants.
“Spot Option’s trading platform allegedly supported a worldwide binary options fraud,” Jennifer S. Leete, associate director in the SEC’s Enforcement Division said. “This action shows that the SEC will work with its foreign regulatory partners to pursue international actors who defraud U.S. investors.” In its investigation of Spot Option, the SEC reportedly partnered with foreign regulators from the British Virgin Islands, Bulgaria, Czech Republic, Hong Kong, Ireland, Israel, Switzerland, and the United Kingdom.
